Alien in 401(k) Plan

[rblum50]

I have a doctor client in Texas that has maintained 401(k) and cash balance plans for the last 4 years. From the start of the plans, there has been a participant in the plan that the doctor (and the participant) thought was a citizen. Taxes, both income and Social Security, have been withheld and sent in with no problems. It is now found out, that this participant, who is now stuck in Mexico, was given a bill of goods by her mother regarding her citizenship. Whether it's believable or not, here are the issues I would like someone to comment on:

1. What happens to the monies in the pension/profit sharing plans? Does the participant have any rights to her vested account balance in the 401(k) plan, including her own accumulated salary deferrals? What happens to the vested accrued benefit in the cash balance plan? Are checks cut and sent to Mexico?

2. Are there implications for the medical practice by having her for an employee for the last 4 years?

3. I was curious if an individual can get a Social Security number without first being a citizen. I am sure she doesn't have a visa in as much as she thought she was a citizen. If you're not a citizen, what happens to the income taxes that have been withheld from your salary?

[My 2 cents]

1. On what possible basis would you deny this person any portion of the account to which she had vested rights? Payouts are not limited to citizens or even people currently in the US. If she is in Mexico, send the money to Mexico (or, if she maintains bank accounts in the US, it could probably be arranged that the funds be deposited there). You wouldn't think twice if she had been a naturalized citizen who, after retirement, had returned to the country of her birth. Pension payments go to people living elsewhere all the time.

2. Speculation here, but don't you have to catch someone employing an undocumented alien to impose any penalty on them? And what standards must the employer fail to meet for there to be any issues (especially given that the worker had been living in this country for years and believed herself to be a citizen)?

3. Presuming no fraud or falsification of identity, I would presume from this case that one need not be a citizen to get a Social Security Number. Certainly, anyone here on a green card must obtain one. Is there any reason to believe that the SSN she had been using was not hers? As for income taxes, they would be owed for the compensation received, irrespective of citizenship or resident status. She had presumably properly filed income tax returns through 2009. She probably ought to prepare to file a tax return for 2010, taking credit for any amounts already withheld.

Presuming that she had been living in the US for an extended period of time and had even believed herself to be a citizen, it would certainly seem unjust and draconian for her to be denied the opportunity, in the near future, to return and resume gainful employment and to strive to actually obtain citizenship status.

[jkdoll2]

1. On what possible basis would you deny this person any portion of the account to which she had vested rights? Payouts are not limited to citizens or even people currently in the US. If she is in Mexico, send the money to Mexico (or, if she maintains bank accounts in the US, it could probably be arranged that the funds be deposited there). You wouldn't think twice if she had been a naturalized citizen who, after retirement, had returned to the country of her birth. Pension payments go to people living elsewhere all the time.

2. Speculation here, but don't you have to catch someone employing an undocumented alien to impose any penalty on them? And what standards must the employer fail to meet for there to be any issues (especially given that the worker had been living in this country for years and believed herself to be a citizen)?

3. Presuming no fraud or falsification of identity, I would presume from this case that one need not be a citizen to get a Social Security Number. Certainly, anyone here on a green card must obtain one. Is there any reason to believe that the SSN she had been using was not hers? As for income taxes, they would be owed for the compensation received, irrespective of citizenship or resident status. She had presumably properly filed income tax returns through 2009. She probably ought to prepare to file a tax return for 2010, taking credit for any amounts already withheld.

Presuming that she had been living in the US for an extended period of time and had even believed herself to be a citizen, it would certainly seem unjust and draconian for her to be denied the opportunity, in the near future, to return and resume gainful employment and to strive to actually obtain citizenship status.

I've had the sam issue - what if the document for the plan excludes illegal aliens - in which she was one since she was not a citizen and perhaps she didnt have a green card and was here illegally? Does she still receive benefits? Does this put the plan in jeopardy?

Thanks - curious.

[Guest Matthew Gouaux]

The plan document should answer your question of whether or not this person was eligible to participate. If she was not, then you might consider correcting under EPCRS (perhaps by amending retroactively, if permitted, or distributing elective deferrals and forfeiting employer contributions).

I do not believe a non-citizen can obtain a Social Security Number. However, a non-citizen can obtain a tax ID number from the IRS (an "ITIN" or Individual Tax Identification Number) to file tax returns, etc. This participant will need to provide the ITIN to the Plan before the Plan can make a distribution because the Plan cannot report her distribution to the IRS (on Form 1099-R) using the wrong SSN (she may have provided another person's SSN to the employer). So if a distribution is required, you might ask her to get an ITIN.

[My 2 cents]

The Social Security website indicates that non-citizens with valid Department of Homeland Security work papers can obtain Social Security numbers.

One does wonder when and how the person in question obtained a SSN. If (as is implied by the information in the first post) the person truly believed herself to be a citizen but was not, what documentation was she able to present when the SSN was obtained?

Certainly, she would have had to give the doctor an SSN to obtain work, and if she believed herself to be a citizen, she would not have had any reason to provide the doctor with false information. So the implication is that she does have an actual SSN assigned to her.

I don't recall ever having seen any plan provisions explicitly excluding illegal aliens from participation in the plans we service. Absent such a provision, even if she had somehow been able, without proper documentation, to obtain an SSN and work for years in covered employment, I reiterate my belief that it would be inappropriate, both legally and morally, to deny her the benefits promised her under the pension plans.

Workers, whether citizen or not, owe taxes on their income. Taxes withheld from income are sent in by the employer to the government and serve to cover part or all of the individual's income tax obligation. If the amount withheld exceeds the tax liability, the excess is refundable (even, I presume, to undocumented aliens currently blocked from entering the US).

[Guest Sieve]

Just an aside, but the title of this string--Alien in a 401(k) Plan--sounds very much like it ought to be a black-and-white Japanese-language monster film starring Raymond Burr . . .

[Laura Harrington]

1.

Presuming that she had been living in the US for an extended period of time and had even believed herself to be a citizen, it would certainly seem unjust and draconian for her to be denied the opportunity, in the near future, to return and resume gainful employment and to strive to actually obtain citizenship status.

I've had the sam issue - what if the document for the plan excludes illegal aliens - in which she was one since she was not a citizen and perhaps she didnt have a green card and was here illegally? Does she still receive benefits? Does this put the plan in jeopardy?

Thanks - curious.

Does the document really say illegal aliens are excluded? Or does it say nonresident aliens? The nonresident alien exclusion is a very narrow exclusion It only applies to those who are non-residents, non-citizens and have no U.S. source income.

In the scenario of the original poster, the non-resident alien definition is not satisfied because the individual was a resident of the US and had US source earned income.

If you did have a plan that excluded non-resident aliens, and the plan inadvertently covered one, it would be handled just like any other failure to follow the terms of the plan document.

My feeling is that the original poster is also confused about what contitutes a "non-resident alien". As the previous posters have said, if the individual was eligible for the plan, regardless of her citizenship, she has every right to the money that is in the plan. It would be illegal for the company to take it away from her.